Weekly Market Wrap Up, March 9, 2015

AT&T and Tech Giant Apple

Apple makes headlines as the leader in technology will be replacing AT&T in the Dow Jones Industrial Average (DJIA), an index comprising 30 of the largest public companies in the US. The change will be effective with the opening of the NYSE on March 19.

To be added to the DJIA, a company must have an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Apple is excelling in all these attributes. Apple has a market capitalization of about $736 billion, making it the largest publicly traded company in the world. It also has $178 billion in cash on its balance sheet.

Another factor is that Apple was able to adjust closer to the stock prices at which the companies in the DJIA are currently trading with its stock split back in June 2014. This was important as the more expensive stocks are, on a per-share basis, the larger weighting and impact they have on changes in the index’s price. The amount of shares were multiplied by seven whereas the stock price was divided by seven from $700 to $100.

Visa, another Dow member, has a great impact and influence on the DJIA. Visa is currently the highest weighted member of the DJIA trading at $274 compared to Apple’s $126.41 which is the fifth heaviest traded stock. Visa’s upcoming pursuit of undertaking a 4:1 stock split is another reason for Dow’s change. This means that Visa shares will multiply the amount of shares by four as its price will tumble from about $275 to about $69 per share (one-fourth the price) falling beneath Apple’s share price.

By joining the DJIA, Apple opens the doors for a new class of investors to consider Apple to become part of their portfolio. Furthermore, all Dow members pay dividends, which means for Apple investors a sort of regular cash return in addition to the return through its share price.

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Is Apple over-expanding?

According to Al Ries, chairman of Atlanta-based consulting firm Ries & Ries and author of “The 22 Immutable Laws of Branding,” branding is crucial to attain long-term success, profits and product/service existence. One of his most significant quotes in this book is, “If we want to build a powerful brand, we should contract it, not expand it,” adding, “a brand becomes stronger when it narrows its focus.”

How is Apple able to put its name and logo on so many different products and, yet, does not lose value or brand identity?

CEO Tim Cook has been pushing the iPhone maker to enter new market segments to further envelop users’ digital lives with Apple’s products and services. The Apple Watch debuts on Monday, March 9th, and an estimated 30 million watches are supposed to be sold in the course of the first year. As a comparison, 75 million iPhone were sold in the fourth quarter of last year. Reportedly, Apple has also been working on an electric auto, Apple Car, and is pushing to begin production as early as 2020. And who knows what else Apple has in store for the years to come.

In the case of Apple, it seems putting its brand’s name on everything is exactly one of the recipes that make Apple so successful: giving consumers the choice of variety and innovation. Apple has valuable reputation, provides quality, authenticity, and builds a relationship of trust with its customers. Not to mention, their products enhance customer’s lifestyles and in return, customers are continuously sold on additions of product lines.


Article submitted by Natalie von Cieminski of the Capital Markets Lab. To learn more about the Capital Markets Lab please visit their web site https://business.fiu.edu/capital-markets-lab/.

About Capital Markets Lab

The Capital Markets Lab (CML) provides students, faculty, and the South Florida community with unparalleled educational and technological resources relating to finance. By utilizing the most current financial research platforms available, students are given an opportunity to supplement academic theory with the real world analytical tools used by leading financial institutions. Visit us at http://business.fiu.edu/capital-markets-lab/.

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